Income Strategy – How to Create a Spending Plan

Creating a spending plan is perhaps the best way to ensure a successful and rewarding retirement. Yet many of us are unsure how to begin. Below are a few steps that will help you create your spending plan.

Gather all of the current financial statements and regular communications you receive that relate to your spending each month. This includes monthly bank statements, investment accounts, recent utility bills, mortgage statements, credit card bills, loan payment books, and any information regarding a source of income or expense. The purpose of this step is to create a monthly average of your income and expenses, so the more information you have available, the better.

Create a spreadsheet or other type of document to record the information, beginning with your income. List each source of income and record the average monthly amount of each source. If you are employed and will continue to be for some time, record your actual take-home pay. If you are self-employed or have any outside sources of income, be sure to record those.

Create a list of monthly expenses. Write down a list of all the expected expenses you incur over the course of a month. This includes a mortgage payment, car payments, credit card payments, auto insurance, groceries, utilities, entertainment, dry cleaning, property insurance, retirement or other savings. If you have expenses that are not paid regularly (such as property taxes, income taxes for self-employment, or insurance premiums), be sure to list those either in a separate section, or you can divide the amounts into a monthly dollar figure and include with your list of expenses.

Break expenses into two categories: fixed and variable. Fixed expenses are those that stay relatively the same each month. These expenses include your mortgage or rent, car payments, cable television, credit card payments and so on.Variable expenses are those that change from month to month and include items such as groceries, entertainment, eating out, fuel costs, and gifts.

Total your monthly income and monthly expenses. If your total shows that you have more income than expenses, you have a surplus—and that’s a great place to start. This means you can make decisions about spending the extra money. You may choose to pay more on credit cards to eliminate debt faster or to travel more often. If your expenses are more than your income, you will have to make adjustments to cover the shortfall.

Make adjustments to expenses. If your expenses are higher than your income, the first place to look at making adjustments it to the variable expenses you listed. Because your variable expenses typically aren’t necessary to survival, there should be a few items that you can trim. Expenses for gifts and entertainment are typically the easiest to delay. Perhaps it’s time to cancel magazine subscriptions. Maybe eating our less will save enough to create a surplus.

Commit to review your spending plan on a regular basis. It is important to review your spending plan on a regular basis to monitor whether you are on track. Some people manage and track their expenses daily, while others are able to stay on top of spending on a monthly basis. After the first month, it will be necessary to compare your actual expenses with those you had planned. Oftentimes, an expense has been left out or was unexpected.

Sleep better at night. Once you’ve gained control of your spending and have a reliable, workable plan in place, your worries about income and spending will be easier to overcome. You’ll know exactly where your money comes from and where it goes—and that can make for a much better night’s rest.

This information is provided by Retiree Inc. for general informational purposes. Nothing in this website should be considered as a solicitation or a recommendation or advice to buy, sell or continue to hold securities or other investments, or take any specific action regarding any tax matters. Accordingly, certain of the securities and strategies referred to in the website may not be suitable for you; therefore, it is important that you consider the information in this website in the context of your own investment needs and objectives, including risk tolerance, investment goals and time horizon.

The data in the website is from what are considered reliable sources; however Retiree Inc. does not guarantee the accuracy, completeness or reliability of the information for third-party data. Retiree Inc. is not under any obligation to, nor intends to, update research commentary. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Examples provided are for illustrative purposes only and are not representative of intended results that a client should expect to achieve.

The information in this website is not intended to be a substitute for specific individualized investment planning advice. Advisory services are provided through a Retiree Inc. affiliate Retirement Benchmark LLC, a SEC registered investment advisor.